Forum

Ltd expenses

The situation is... there's one man ltd company, the director pays for some company expenses using his own money. What is the action now? How to connect this expenses with company and how director can get the money back. I will be very grateful if someone could help me.

“The situation is... there's one man ltd company, the director pays for some company expenses using his own money. What is the action now? How to connect this expenses with company and how director can get the money back. I will be very grateful if someone could help me.”

Anja,

consider these expenses from the cash account

let's say

the director takes out of business account 100£

Cash Acc Dr Cr

100

-------------------------------------

Bank Dr Cr

100

---------------------------------------

now the director pays for some expenses( 50£ tools & equipment)

Tools & Equipment Dr Cr

50

---------------------------------------

Cash Acc Dr Cr

50

--------------------------------------

it depends what type of expense it is, make sure u debit and credit the correct accounts and have a receipt

“The situation is... there's one man ltd company, the director pays for some company expenses using his own money. What is the action now? How to connect this expenses with company and how director can get the money back. I will be very grateful if someone could help me.”

how far as i know, just take all expenses receipts from director and wright him cheque of his expenses, this way he can claim his expenses.

I'm really new to this so forgive me if I'm way off, but any expenses the director pays for out of his own pocket would be classified as a directors loan, which needs to be recorded as such. So this would now need to be added to any capital equity invested in the business at inception as it is a further liability. Not sure what the entries would be as not figured that out as yet.

The advice above is mostly great. You could write a cheque or make a transfer to the director and use the receipts to account for the expenses relative to the payment. You could also use an account on the Nominal Ledger for drawings that the director takes and offset the drawings with the expenses the director pays. In my arrangement I set up a payable account for the director to record the expenses he pays. Sometimes he wants to credit his drawings and other times he wants to be paid directly. I settle up the payable account monthly.

One item mentioned here by Digit is definately incorrrect, which involves Directors Loans. A directors loan is not capital. It could be a loan given to the company by the director (a liability) OR a loan taken out from the company by the director (an asset). There is a good resource here: https://www.gov.uk/directors-loans which talks more at length about a Directors Loan.

The advice above is mostly great. You could write a cheque or make a transfer to the director and use the receipts to account for the expenses relative to the payment. You could also use an account on the Nominal Ledger for drawings that the director takes and offset the drawings with the expenses the director pays. In my arrangement I set up a payable account for the director to record the expenses he pays. Sometimes he wants to credit his drawings and other times he wants to be paid directly. I settle up the payable account monthly.

One item mentioned here by Digit is definately incorrrect, which involves Directors Loans. A directors loan is not capital. It could be a loan given to the company by the director (a liability) OR a loan taken out from the company by the director (an asset). There is a good resource here: https://www.gov.uk/directors-loans which talks more at length about a Directors Loan.

”

Sorry slojen, I don't mean to be rude because you quite clearly outrank me, but a directors loan as you have agreed is a liability, as is capital - being money owed to the director by the company, so therefore any money lent to the company by the Sole director must inherently compound the Capital as it increases the debt to the Director.

It isn't rude to question things because this is how you will learn and improve.

Financially a Director can have many different interactions with their business. All dealings are not an increase or decrease in capital, otherwise why would your study materials ever discuss drawings or why would there even be the need for the government to discuss Directors Loans at all. You also have overlooked the fact that a Directors Loan can be made to the Director, by borrowing from the business, which again has nothing to do with capital.

As you can see from other commenters, no one is mentioning expenses paid by a director as being a capital investment in the business, because it's not. It's just another way business expenses are incurred. I again recommend you review the link I provided regarding Directors Loans for more detail on that topic. If you are still unconvinced then hopefully as you go further in your studies you will better understand these topics.

It isn't rude to question things because this is how you will learn and improve.

Financially a Director can have many different interactions with their business. All dealings are not an increase or decrease in capital, otherwise why would your study materials ever discuss drawings or why would there even be the need for the government to discuss Directors Loans at all. You also have overlooked the fact that a Directors Loan can be made to the Director, by borrowing from the business, which again has nothing to do with capital.

As you can see from other commenters, no one is mentioning expenses paid by a director as being a capital investment in the business, because it's not. It's just another way business expenses are incurred. I again recommend you review the link I provided regarding Directors Loans for more detail on that topic. If you are still unconvinced then hopefully as you go further in your studies you will better understand these topics.

Good luck!

”

Hiya, thanks for the wishes, I just took a b1 mock and it did state in one of my questions if a business owner pays for things out of own pocket it would be a credit to drawings and a debit to whatever it was they bought - however if the purchase was a large fixed asset it would be an addition to capital.